Costa Rica: Concluding Statement of a Staff Visit
June 18, 2018
A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF's Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.
The authorities have consented to the publication of this statement. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.
A team from the International Monetary Fund (IMF), led by Mr. Trevor Alleyne, visited San Jose from June 12 to 15, 2018 to review the most recent macroeconomic developments and discuss the new government's strategy to address the unsustainable fiscal situation currently facing the country. The IMF technical team met with the Economic Coordinator Edna Camacho, the Minister of Finance Rocio Aguilar, the President of the BCCR Olivier Castro, and members of the Legislative Assembly, including some members of the Treasury Affairs Committee and the Special Commission of the Legislative Assembly for Fiscal Reform.
1. Economic activity continues to be solid but has slowed down, and strengthening the fiscal position remains a major policy challenge. The average growth rate of the monthly economic activity index (IMAE) was 3.2 percent in the first quarter of 2018 (compared to 3.3 percent in the same period last year). Both the inflation rate and inflation expectations remain within the target range, and the monetary policy stance is adequate. The external position remains stable as robust growth in merchandise exports and tourist arrivals are dampening the negative effect on the current account of recovering oil prices. However, in the absence of policy measures, the fiscal deficit is expected to reach 7.2 percent of GDP in 2018, putting the debt of the central government on an unsustainable path.
2. In this context, the IMF's technical team believes that the fiscal reform being considered by the Legislative Assembly, together with the initiatives for cutting public spending proposed by the Minister of Finance two weeks ago, constitute an important first step towards restoring fiscal sustainability and removing the main risk to economic growth facing the country. Given the magnitude of the required adjustment, it is appropriate that the plan incorporates a strategy of both revenue mobilization and expenditure containment.
3. While the authorities’ announced measures are a step in the right direction, a more comprehensive reform strategy would be needed to achieve long-term fiscal sustainability. However, delaying the implementation of the reform that is in the Legislative Assembly, awaiting the preparation of a comprehensive plan, will only increase the cost of the adjustment and prolong the uncertainty in the financial markets and among investors that is contributing to the slowdown in the economic activity.
4. It is necessary to start implementing the proposed measures as soon as possible. At the same time, it is important that the government carry out a detailed analysis of the expected savings of each of the measures considered in the fiscal reform, and ensure the credibility of its commitment to implement other structural reforms to achieve long-term fiscal sustainability.
5. In this effort, the IMF stands ready to assist the authorities in whatever way they deem most convenient.
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